The federal government is about to face off with the country's legal profession over a renewed attempt to force lawyers to comply with rules designed to combat money laundering, the latest skirmish in a decade-long battle.
The two sides have been in a standoff for 10 years, after the profession challenged the government's attempt to require lawyers - as it does bankers and accountants - to secretly tell a government agency about clients they suspect of laundering money or financing terrorists.
The provincial law societies, which regulate lawyers, challenged the proposed rules in court, arguing they violated the Constitution by overriding lawyer-client privilege, forcing lawyers to break their profession's rules, betray their clients and become government informants.
The B.C. Supreme Court, in a 2001 ruling upheld on appeal and echoed by other courts across the country, imposed an injunction to shield lawyers from the rules until the constitutional question was resolved.
Now, Ottawa's Finance Department is trying to force the legal profession to comply with another batch of anti-money-laundering rules that would spell out how lawyers must verify the real identities of their clients, and how lawyers' records must be kept.
The new regulations would also allow government agents the right to search law offices - without search warrants - to ensure the reporting rules are being followed. The legal profession argues the renewed push threatens its treasured independence from government.
For the federal government to get its way, a Finance Department spokesman said, it must convince the B.C. Supreme Court to lift its 10-year-old injunction in a hearing this May.
The hearing will see the government challenge the original 2001 petition against the legislation filed by the Federation of Law Societies of Canada, which represents the legal profession's 14 provincial self-governing bodies.
The legal profession is not giving up without a fight.
Ron MacDonald, president of the Federation of Law Societies of Canada, said the battle hinges on the long-established independent self-regulation of lawyers. It is not, he insists, about protecting lawyers if they are up to no good.
The system is meant to protect the rights of clients to seek legal advice without fear that information they give their lawyers could end up in government hands, he noted.
"Clients have to be able to know their lawyers are able to give them independent legal advice. And to do that, in our view, the Constitution of Canada requires that lawyers be independently regulated," Mr. MacDonald said. "This isn't about lawyers' rights. This is about clients' rights."
The Canadian Bar Association, which represents 37,000 members of the legal profession across the country, is an intervenor in the court case and supports the federation, arguing that that law societies, not the government, should regulate lawyers.
"Lawyers aren't out there saying that we shouldn't be governed at all by any rules or that we should be free to launder money," said Ron Skolrood, a lawyer with Lawson Lundell LLP in Vancouver who is acting for the association in the case. "It's more about what's the proper mechanism for regulating lawyers in a way which protects some of those fundamental values, such as solicitor-client privilege."
Governments around the world have been ramping up their efforts to fight money laundering, trying to catch drug dealers, terrorists, and other criminals by tracking their financial flows. Lawyers, who often use their trust accounts on behalf of clients, have been singled out by law enforcement as a source of money-laundering activity in Canada and around the world.
Several lawyers have been charged with money laundering in recent years, including Toronto lawyer Simon Rosenfeld, who was even caught on tape in an RCMP sting mocking Canada's light touch with white-collar crime. In 2005, he was convicted of moving what he was told were cocaine profits through a complex chain of accounts and shell companies.
After the 2001 court injunctions that spared lawyers from the money-laundering rules, Ottawa agreed to exempt lawyers from the obligation to report "suspicious transactions" to the Financial Transactions and Reports Analysis Centre of Canada, or FINTRAC, the anti-money-laundering agency set up in 2000.
The 14 law societies also tried to meet the government halfway, imposing their own new rules meant to crack down on money laundering; for example, banning lawyers from receiving more than $7,500 in cash from a client.
In 2008, the government revived the money-laundering issue, saying it would head back to court to enforce the client-identification rules on lawyers, despite the legal profession's objections.
The law societies countered by bringing in new, slightly less-stringent rules governing client verification, demanding, for example, that lawyers make "reasonable efforts" to ascertain the names of the directors and large shareholders of a company that retains them.
In the end, many say it is more than a clash about how lawyers are regulated. It is a dilemma that pits the special, protected relationship lawyers have with their clients against the goal of cracking down on crime.
"The tension arises because of lawyers' sacred obligation of client confidentiality and solicitor-client privilege," said Prema Thiele, a lawyer with Borden Ladner Gervais LLP. "Lawyers are the only profession where that client relationship is sacred, and has been recognized legally as such, and now we've got a competing cause, being the fight against money laundering."